# Midterm1answers F2006 - Economics 1 Fall 2006 University of...

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Economics 1 Midterm Exam #1 Fall 2006 October 4, 2006 University of California, Berkeley 12:10-1:00 PM Page 1 of 9 Midterm #1 Please do not open the exam until you are told to do so. At 12:55, pass your exams to the aisles, where the GSIs will pick them up. Do no leave the auditorium before the exams are passed in, even if you have finished your answers. Points for each question are given in parentheses. Total points: 100 Your Name__________________________ Your SID____________________________ Your GSI’s Name_____________________

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Economics 1 Midterm Exam #1 Fall 2006 October 4, 2006 University of California, Berkeley 12:10-1:00 PM Page 2 of 9 1. Define in words (no math or graphs) the marginal rate of transformation. (5 points) The MRT is the amount of one good that must be given up in order to produce one more unit of another good. In other words, the opportunity cost of producing one good measured in terms of another good. 2. Give the four conditions for perfect competition, as given in lecture. No need to elaborate on them: just state them. (8 Points) Many small firms Homogenous product Free entry and exit All firms face the same costs 3. Define “the short run” as used by the textbook in reference to costs. (5 points) A period of production such that: The level of capital is fixed There is no entry or exit
Economics 1 Midterm Exam #1 Fall 2006 October 4, 2006 University of California, Berkeley 12:10-1:00 PM Page 3 of 9 4. Currently an excise tax of \$10 per unit is placed on a good. Under this tax, the equilibrium price paid by consumers is P 1 in the graph below. A proposal has been made to cut the tax in half, to \$5 per unit instead of \$10 per unit. We want to know how this proposed tax reduction will affect consumers and producers. Show on the graph (i) the change in consumer surplus and (ii) the change in producer surplus that would result from the proposed tax reduction. Add whatever new lines or curves you need in order show these areas. (5 points for each) 10 D S 0 S 1 P 1 Price S 2 5 Change in Consumer Surplus Change in Producer Surplus Q

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Midterm1answers F2006 - Economics 1 Fall 2006 University of...

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